The IRS may be treating celebrities like they’re worth more dead than alive.
The Internal Revenue Service has started using “image and likeness” as a factor in determining the value of estates of deceased celebrities, raising concern among trust and estate lawyers, Bloomberg BNA reported.
Documents recently released in litigation between the estate of pop star Michael Jackson and the IRS showed that a large part of the dispute revolves around the value of Jackson’s image and likeness. While the estate assessed the value of his image at $2,105, the IRS’s valuation was more than $430 million.
The IRS is seeking more than $700 million in tax penalties from the estate, and the government has released valuations on everything from the car to his business interests and property after a U.S. Tax Court challenge in July from the estate.
The IRS valued his estate at more than $1.1 billion and said executors significantly undervalued his property, resulting in a tax deficiency of more than $505 million and additions to tax of more than $196 million, Bloomberg BNA reported.
The mere inclusion of Jackson’s image and likeness as a factor in his estate’s value is raising questions among some trust and estate lawyers. Attorney Matt Kadish of Kadish, Hinkel & Weibel in Cleveland said he’s “unaware of any cases to date that have addressed whether the value of a person’s image rights are subject to estate tax, and if so, how to value them.”
Several Tax Court decisions have addressed the value of a celebrity’s image and likeness for income tax purposes, such as when his firm represented professional golfer Retief Goosen in a dispute over sponsorship payments, Kadish said.
“Those cases focused on allocations of income, and apart from some dicta, didn’t directly rule on whether image rights are a separate asset for tax purposes,” Kadish said.
The IRS didn’t respond to a request for comment.
The issue in a case such as Jackson’s is what the assets were worth when the person died, not what the IRS says they are worth after death, said Adam Streisand, head of Loeb & Loeb LLP’s trusts and estate litigation department in Los Angeles.
For Jackson specifically, Streisand said death positively impacted the value of his image and likeness.
While the IRS does test the value based upon subsequent events, the executor is entitled to value the property based on what was known on the valuation date, not on circumstances that one might speculate might exist in the future, Streisand said.
Kadish said he has “major concerns” about the IRS’s “sudden decision” to include image and likeness as part of a taxable estate “without having provided any prior guidance or opportunity for public comment.”
Kadish also raised the question of how celebrities are going to pay for this new tax liability.
“Are athletes, entertainers, and other celebrities going to have to buy life insurance, or engage in other new planning to avoid a ruinous ‘cash crunch’ shortly after their death?”